Opening hotel, tax and property investing

Locornwall

Very speculative post and hope to get some general advice.

it is a dream of mine to someday in approximately 10 years to have my own small hotel with piano bar. I intend on partly funding this using pension commutation and savings and investments in between then. I intend on starting to buy some property in the next year and was wondering where to start looking at the most efficient way of doing this? Should I look to do this in my own name or open a business. I have no knowledge of how this works, so go easy please. Any general advice would be great. Thanks.

Jeremy535897

You need to make your question clearer. As it would be illogical to buy a hotel 10 years before opening it, I assume your question is about how to buy rental properties that will be sold in due course to fund the hotel purchase?

Savvy_Sue

Also, please, if you don't already work in the industry, get some practical experience in hotel management at someone else's risk and expense ...

Locornwall

Jeremy535897 said:

You need to make your question clearer. As it would be illogical to buy a hotel 10 years before opening it, I assume your question is about how to buy rental properties that will be sold in due course to fund the hotel purchase?

Exactly. Thanks. Yes how best to invest in properties, as a sole trader or limited company etc?

Locornwall

Savvy_Sue said:

Also, please, if you don't already work in the industry, get some practical experience in hotel management at someone else's risk and expense ...

Thanks Sue. Definitely will do a little closer to the time. I’m not looking to make a Hilton empire, just a small place.

Jeremy535897

The first point I would make is that it may not be wise to take income subject to tax out of a pension to invest the after tax income in property. It may be better to leave the money in the pension scheme, where it can be invested gross (but not in residential property).

As to what sort of vehicle to use to buy your hotel, that depends in part on what vehicle you want the hotel to be in? If you want that in a limited company, then there are advantages, if you are a higher rate taxpayer and don't need all the income, in putting the rental properties in the company, as the company pays corporation tax at a lower rate than 40%. When the time comes, the company sells the rental properties and buys the hotel. However, companies can ultimately increase the tax burden when they come to an end, and will increase administration costs. The tax impact will also differ depending on whether you buy residential or commercial property.

To clarify, you are not a sole trader if you personally invest in rental properties. You are a landlord.

You should also consider stamp duty. See:
https://www.gov.uk/guidance/stamp-duty-land-tax-buying-an-additional-residential-property

Locornwall

Jeremy535897 said:

The first point I would make is that it may not be wise to take income subject to tax out of a pension to invest the after tax income in property. It may be better to leave the money in the pension scheme, where it can be invested gross (but not in residential property).

As to what sort of vehicle to use to buy your hotel, that depends in part on what vehicle you want the hotel to be in? If you want that in a limited company, then there are advantages, if you are a higher rate taxpayer and don't need all the income, in putting the rental properties in the company, as the company pays corporation tax at a lower rate than 40%. When the time comes, the company sells the rental properties and buys the hotel. However, companies can ultimately increase the tax burden when they come to an end, and will increase administration costs. The tax impact will also differ depending on whether you buy residential or commercial property.

To clarify, you are not a sole trader if you personally invest in rental properties. You are a landlord.

You should also consider stamp duty. See:
https://www.gov.uk/guidance/stamp-duty-land-tax-buying-an-additional-residential-property

Thanks, this is exactly what I meant.

I am not looking to take any money out of my pension. The money will come at early retirement when I get the commutation amount.

Yes, I am a higher rate tax payer. 

Jeremy535897

Rather than reinventing the wheel, see:
https://www.landlordvision.co.uk/blog/property-investment-personal-company/

Savvy_Sue

Locornwall said:

Savvy_Sue said:

Also, please, if you don't already work in the industry, get some practical experience in hotel management at someone else's risk and expense ...

Thanks Sue. Definitely will do a little closer to the time. I’m not looking to make a Hilton empire, just a small place.

Well, you may find you enjoy the property investment interesting and enjoyable in its own right, but it might be worth looking into the hotel experience sooner rather than later. It's just if the reality doesn't match the dream (and in this line of work it often doesn't ...) and you find out later rather than sooner that actually, this is not what you had in mind with your dream, it may be difficult to find a new dream, especially if you've sunk a lot of money into what you thought would be your dream hotel. 

I'm sorry, I'm a horribly practical person, and also a fairly antisocial one, so every time I hear of someone with a dream of opening a coffee shop / getting a coffee van / starting a B&B / running a pub / opening a hotel / whatever, I just get the heebie jeebies thinking of All Those People they'll have to be nice to, and What Hard Work it will be, and so on. And I realise this is MY nature, and some people do actually just LOVE being nice to All Those People (which I really appreciate when I visit their coffee shop etc), and don't mind working all the hours of the night and day to keep it going, so do take that into account when you read my posts, BUT do also be aware that people sometimes run into major problems simply through inexperience. Some time ago, on here, there was

• a couple running a pub who ran into major problems I think because of equipment leases which they remained responsible for after they gave up the pub
• someone renting a large property to run as a B&B facing major issues for I can't remember what reason, but it was costing an arm and a leg 

And at work we were given some lovely crockery and cutlery by someone who'd tried to start their dream cafe but run into huge problems before they even opened, they were in tears about it all. 

And we do visit a small hotel (less then 10 bedrooms) and have often spent time with the owner, obviously the pandemic hasn't helped although they were able to spend lockdown improving the facilities without inconveniencing guests. They have a USP which with a reluctance to travel abroad means they are fully booked more often than they used to be, and they have day visitors, but it's not for the faint-hearted!

Locornwall

Savvy_Sue said:

Locornwall said:

Savvy_Sue said:

Also, please, if you don't already work in the industry, get some practical experience in hotel management at someone else's risk and expense ...

Thanks Sue. Definitely will do a little closer to the time. I’m not looking to make a Hilton empire, just a small place.

Well, you may find you enjoy the property investment interesting and enjoyable in its own right, but it might be worth looking into the hotel experience sooner rather than later. It's just if the reality doesn't match the dream (and in this line of work it often doesn't ...) and you find out later rather than sooner that actually, this is not what you had in mind with your dream, it may be difficult to find a new dream, especially if you've sunk a lot of money into what you thought would be your dream hotel. 

I'm sorry, I'm a horribly practical person, and also a fairly antisocial one, so every time I hear of someone with a dream of opening a coffee shop / getting a coffee van / starting a B&B / running a pub / opening a hotel / whatever, I just get the heebie jeebies thinking of All Those People they'll have to be nice to, and What Hard Work it will be, and so on. And I realise this is MY nature, and some people do actually just LOVE being nice to All Those People (which I really appreciate when I visit their coffee shop etc), and don't mind working all the hours of the night and day to keep it going, so do take that into account when you read my posts, BUT do also be aware that people sometimes run into major problems simply through inexperience. Some time ago, on here, there was

• a couple running a pub who ran into major problems I think because of equipment leases which they remained responsible for after they gave up the pub
• someone renting a large property to run as a B&B facing major issues for I can't remember what reason, but it was costing an arm and a leg 

And at work we were given some lovely crockery and cutlery by someone who'd tried to start their dream cafe but run into huge problems before they even opened, they were in tears about it all. 

And we do visit a small hotel (less then 10 bedrooms) and have often spent time with the owner, obviously the pandemic hasn't helped although they were able to spend lockdown improving the facilities without inconveniencing guests. They have a USP which with a reluctance to travel abroad means they are fully booked more often than they used to be, and they have day visitors, but it's not for the faint-hearted!

Agree. I am very easy going, and think I could be good at it. It’s a dream to have my own business to be honest. It’s not something I will do for purely business reasons. I’ll no doubt operate as a limited company, so limited exposure. 

gwynlas

My first career was in the hospitality industry and you really need hands on experience before considerin ownership of any catering establishment and ideally a partner interested in the sane thing. Many many years later we have had a suvccessful first year with our second holiday let but are awaiting this years bookings to see if this was covid led.or repeatable business.